Payroll outsourcing is fast becoming a service many employers don`t want to do without.
“It`s not just writing paychecks, it`s the confidentiality element, the task of calculating taxes, the inconvenience of keeping up with changing regulations, the ability to hold someone else accountable, and all the paperwork,” said Tom Ross, owner of Jackson Temporaries. “These are reasons employers are looking to outside firms to handle their payrolls.”
Of the 500 fastest growing companies in the country, 80% attribute rapid growth to their ability to outsource services, said Bill Wilkerson, director of sales for Ameripay in Jackson.
“Business owners are looking for expertise in different areas,” said Wilkerson. “Companies reduce expenses because they do not have a person dedicated to handle payroll. They can focus on core competencies of their companies.”
Cost depends on the number of employees or different needs, but it can be as inexpensive as $1 to $1.25 per employee, said Wilkerson.
Diverse businesses, primarily small to medium sized, are taking advantage of payroll outsourcing, said Don Cunningham, payroll administrator of Tax Prep of Jackson.
“I just landed a client with three employees,” Cunningham said. “About 95% of our clients are small business owners.”
Because payroll outsourcing provides a higher level of confidentiality “than employee records sitting around an office,” Cunningham said, “more companies are going the route of having payroll prepared by an outside source.”
The IRS issued a report that one third of businesses in U.S. have penalties levied for filing taxes late or inaccurately. That amount added up to more than $1 billion in 1996, Wilkerson said.
“A lot of people don`t like to mess with taxes and one of the benefits that justifies our cost is we are computerized,” said Cunningham. “We`ve got the programs in place to take care of this service.”
Thanks to legislative and regulatory changes, collections for “deadbeat dads” has increased drastically, said Cunningham. “Payroll now flags anybody who owes child support or student loans, and wages are garnished. That`s a lot of paperwork, especially in high turnover industries, like fast food.”
Via the Internet, clients can transmit payroll information to expedite the payrolling process. Most payroll companies provide software packages.
Among the services payroll outsource firms provide are preparation and delivery of payroll checks, deduction and remittance of payroll taxes and social security, and the preparation of state and federal unemployment taxes and W-2s. If the firm handles accounting for an employer, 1099s are prepared, too, Cunningham said.
Services may extend to optional health, life and dental programs, credit union membership, and retirement plans, depending on the company.
“The biggest problem we find is we do not get all information we need, such as correct hours and new employee information, especially I-9s,” Cunningham said. “We usually slip a little note in paychecks stating another one will not be issued until we have all of the information we need. That usually does the trick. We don`t want to bug employers about every little thing.”